Political Crisis Poses Ethical Challenge for U.S. Firms in China

Among American business leaders in Hong Kong, the ethical dilemma of doing business in China has taken the form of an unsettling riddle:

The chairman of an American corporation has come to China to check on operations. While there he meets with Premier Li Peng, a key member of the Chinese leadership that ordered the bloody crackdown on pro-democracy demonstrators.

What would you advise the chairman to do if he were asked to shake hands with Li Peng?

"The answer is always universal silence," said Jamie Horsley, a Hong Kong-based attorney who represents IBM, Amoco, H. J. Heinz and other companies in negotiations with the Chinese. "No businessman wants to appear as if he condones the Chinese government's actions."

The military assault on pro-democracy students in Tian An Men Square three weeks ago and the subsequent arrests and executions of demonstrators have caused a soul-searching among corporations doing business in China that has not been seen since South Africa and apartheid forced corporate America to examine its conscience.

From branch offices in Hong Kong to boardrooms in Southern California, companies doing business in China are grappling with several knotty questions implicit in the riddle:

Is there a course that is both ethically appropriate and fiscally prudent? Is there a valid distinction between the state and the people? Does the presence of U.S. firms in China benefit the people or a repressive government?

"It's a very delicate situation," said Stephen Wai, director of business development for Allergan in Irvine, which has two joint ventures in China to manufacture contact lenses.

"On the one hand, you want to show you deplore these kinds of activities in China," Wai said. "At the same time . . . I believe most businesses are trying to bring economic progress to the whole Chinese country and its people, not to the government."

After years of negotiations to get into China, few corporations want to leave and forfeit the chance to do business in theworld's largest untapped consumer market. Neither do they want anyone to think they support the brutal suppression undertaken by leader Deng Xiaoping and Li Peng.

"Business people are thinking about the ethical questions. There is meeting upon meeting upon meeting being held by people trying to decide how they can do the right thing," said Lois Dougan Tretiak, chairman of the China Commercial Relations Committee of the American Chamber of Commerce in Hong Kong.

Some 200 American companies doing business in China have pulled out their non-Chinese employees, and at least some have temporarily shut down operations. So far, few have returned. "If they were simply motivated by money, they would have gone back into China already because the shooting has stopped," Tretiak said. "There are ethical concerns here that go far beyond just the decision of how to make a buck in China."

Time and again, businessmen and analysts compared the current ethical crisis in China to the moral quandary presented by South Africa's policy of apartheid. During the 1980s, a strong anti-apartheid movement resulted in severe economic sanctions and a divestiture movement that swept many firms out of the country.

Right now, most business leaders say they are taking their cue from the Bush Administration, which has admonished the Chinese leadership while emphasizing the need to maintain a relationship.

Bush has cut high-level contacts between the two nations and ordered action to block China's access to loans from international financial institutions. But many members of Congress have criticized Bush for not taking a tougher stand.

High-level managers of several Southland companies said they wish to remain in China and believe their presence there will ultimately benefit the people--the same refrain companies used regarding South Africa--but they expect pressure from shareholders and religious groups.

Timothy Smith, executive director of the Interfaith Center on Corporate Responsibility, a New York coalition of 240 church investors, says they are right.

"We believe that U.S. corporations doing business in China need to be carefully watching the human rights situation there," Smith said. "Why, if in South Africa U.S. companies are vigorously challenging the government for its apartheid policies and vigorously criticizing it for human rights abuses, why won't they or can't they apply the same standards in a situation like China."

Smith's concerns are not entirely falling on deaf ears.

"Obviously, we need to re-evaluate the situation," said Gene Lu, president of Advanced Logic Research Inc. in Irvine. "I'm not really happy with what's going on over there."

The ethical issues engulfing corporations doing business in China touch a corporate nerve, and plenty of companies--McDonnell Douglas, Fluor and Occidental Petroleum among them--refused interview requests on the subject.